The Failure to Predict the Great Recession. The Failure of Academic Economics? A View Focusing on the Role of Credit

47 Pages Posted: 1 Feb 2013

Date Written: December 2012

Abstract

Much has been written about why economists failed to predict the latest financial and real crisis. Reading the recent literature, it seems that the crisis was so obvious that economists must have been blind when looking at data not to see it coming. In this paper, we illustrate this failure by looking at one of the most cited and relevant variables in this analysis, the now infamous credit to GDP chart. We compare the conclusions reached in the literature after the crisis with the results that could have been drawn from an ex ante analysis. We show that, even though credit affects the business cycle in both the expansion and the recession phases, this effect is almost negligible and impossible to exploit from a policymaker’s point of view.

Keywords: Business Cycles, Credit, Financial Crisis, Forecasting

JEL Classification: C22, E32

Suggested Citation

Gadea Rivas, Maria Dolores and Pérez-Quirós, Gabriel, The Failure to Predict the Great Recession. The Failure of Academic Economics? A View Focusing on the Role of Credit (December 2012). CEPR Discussion Paper No. DP9269, Available at SSRN: https://ssrn.com/abstract=2210239

Maria Dolores Gadea Rivas (Contact Author)

University of Zaragoza ( email )

Gran Via 2
Zaragoza, 50005
Spain

Gabriel Pérez-Quirós

Banco de España

Alcala 50
Madrid 28014
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
404
PlumX Metrics